Tag Archives: natural gas

Global Planned Financial Tsunami Has Just Begun

Posted on by
1

By F. William Engdahl

Source: Global Research

Since the creation of the US Federal Reserve over a century ago, every major financial market collapse has been deliberately triggered for political motives by the central bank. The situation is no different today, as clearly the US Fed is acting with its interest rate weapon to crash what is the greatest speculative financial bubble in human history, a bubble it created. Global crash events always begin on the periphery, such as with the 1931 Austrian Creditanstalt or the Lehman Bros. failure in September 2008. The June 15 decision by the Fed to impose the largest single rate hike in almost 30 years as financial markets are already in a meltdown, now guarantees a global depression and worse.

The extent of the “cheap credit” bubble that the Fed, the ECB and Bank of Japan have engineered with buying up of bonds and maintaining unprecedented near-zero or even negative interest rates for now 14 years, is beyond imagination. Financial media cover it over with daily nonsense reporting , while the world economy is being readied, not for so-called “stagflation” or recession. What is coming now in the coming months, barring a dramatic policy reversal, is the worst economic depression in history to date. Thank you, globalization and Davos.

Globalization

The political pressures behind globalization and the creation of the World Trade Organization out of the Bretton Woods GATT trade rules with the 1994 Marrakesh Agreement, ensured that the advanced industrial manufacturing of the West, most especially the USA, could flee offshore, “outsource” to create production in extreme low wage countries. No country offered more benefit in the late 1990s than China. China joined WHO in 2001 and from then on the capital flows into China manufacture from the West have been staggering. So too has been the buildup of China dollar debt. Now that global world financial structure based on record debt is all beginning to come apart.

When Washington deliberately allowed the September 2008 Lehman Bros financial collapse, the Chinese leadership responded with panic and commissioned unprecedented credit to local governments to build infrastructure. Some of it was partly useful, such as a network of high-speed railways. Some of it was plainly wasteful, such as construction of empty “ghost cities.” For the rest of the world, the unprecedented China demand for construction steel, coal, oil, copper and such was welcome, as fears of a global depression receded. But the actions by the US Fed and ECB after 2008, and of their respective governments, did nothing to address the systemic financial abuse of the world’s major private banks on Wall Street and Europe , as well as Hong Kong.

The August 1971 Nixon decision to decouple the US dollar, the world reserve currency, from gold, opened the floodgates to global money flows. Ever more permissive laws favoring uncontrolled financial speculation in the US and abroad were imposed at every turn, from Clinton’s repeal of Glass-Steagall at the behest of Wall Street in November 1999. That allowed creation of mega-banks so large that the government declared them “too big to fail.” That was a hoax, but the population believed it and bailed them out with hundreds of billions in taxpayer money.

Since the crisis of 2008 the Fed and other major global central banks have created unprecedented credit, so-called “helicopter money,” to bailout the major financial institutions. The health of the real economy was not a goal. In the case of the Fed, Bank of Japan, ECB and Bank of England, a combined $25 trillion was injected into the banking system via “quantitative easing” purchase of bonds, as well as dodgy assets like mortgage-backed securities over the past 14 years.

Quantitative madness

Here is where it began to go really bad. The largest Wall Street banks such as JP MorganChase, Wells Fargo, Citigroup or in London HSBC or Barclays, lent billions to their major corporate clients. The borrowers in turn used the liquidity, not to invest in new manufacturing or mining technology, but rather to inflate the value of their company stocks, so-called stock buy-backs, termed “maximizing shareholder value.”

BlackRock, Fidelity, banks and other investors loved the free ride. From the onset of Fed easing in 2008 to July 2020, some $5 trillions had been invested in such stock buybacks, creating the greatest stock market rally in history. Everything became financialized in the process. Corporations paid out $3.8 trillion in dividends in the period from 2010 to 2019. Companies like Tesla which had never earned a profit, became more valuable than Ford and GM combined. Cryptocurrencies such as Bitcoin reached market cap valuation over $1 trillion by late 2021. With Fed money flowing freely, banks and investment funds invested in high-risk, high profit areas like junk bonds or emerging market debt in places like Turkey, Indonesia or, yes, China.

The post-2008 era of Quantitative Easing and zero Fed interest rates led to absurd US Government debt expansion. Since January 2020 the Fed, Bank of England, European Central Bank and Bank of Japan have injected a combined $9 trillion in near zero rate credit into the world banking system. Since a Fed policy change in September 2019, it enabled Washington to increase public debt by a staggering $10 trillion in less than 3 years. Then the Fed again covertly bailed out Wall Street by buying $120 billion per month of US Treasury bonds and Mortgage-Backed Securities creating a huge bond bubble.

A reckless Biden Administration began doling out trillions in so-called stimulus money to combat needless lockdowns of the economy. US Federal debt went from a manageable 35% of GDP in 1980 to more than 129% of GDP today. Only the Fed Quantitative Easing, buying of trillions of US government and mortgage debt and the near zero rates made that possible. Now the Fed has begun to unwind that and withdraw liquidity from the economy with QT or tightening, plus rate hikes. This is deliberate. It is not about a stumbling Fed mis-judging inflation.

Energy drives the collapse

Sadly, the Fed and other central bankers lie. Raising interest rates is not to cure inflation. It is to force a global reset in control over the world’s assets, it’s wealth, whether real estate, farmland, commodity production, industry, even water. The Fed knows very well that Inflation is only beginning to rip across the global economy. What is unique is that now Green Energy mandates across the industrial world are driving this inflation crisis for the first time, something deliberately ignored by Washington or Brussels or Berlin.

The global shortages of fertilizers, soaring prices of natural gas, and grain supply losses from global draught or exploding costs of fertilizers and fuel or the war in Ukraine, guarantee that, at latest this September-October harvest time, we will undergo a global additional food and energy price explosion. Those shortages all are a result of deliberate policies.

Moreover, far worse inflation is certain, due to the pathological insistence of the world’s leading industrial economies led by the Biden Administration’s anti-hydrocarbon agenda. That agenda is typified by the astonishing nonsense of the US Energy Secretary stating, “buy E-autos instead” as the answer to exploding gasoline prices.

Similarly, the European Union has decided to phase out Russian oil and gas with no viable substitute as its leading economy, Germany, moves to shut its last nuclear reactor and close more coal plants. Germany and other EU economies as a result will see power blackouts this winter and natural gas prices will continue to soar. In the second week of June in Germany gas prices rose another 60% alone. Both the Green-controlled German government and the Green Agenda “Fit for 55” by the EU Commission continue to push unreliable and costly wind and solar at the expense of far cheaper and reliable hydrocarbons, insuring an unprecedented energy-led inflation.

Fed has pulled the plug

With the 0.75% Fed rate hike, largest in almost 30 years, and promise of more to come, the US central bank has now guaranteed a collapse of not merely the US debt bubble, but also much of the post-2008 global debt of $303 trillion. Rising interest rates after almost 15 years mean collapsing bond values. Bonds, not stocks, are the heart of the global financial system.

US mortgage rates have now doubled in just 5 months to above 6%, and home sales were already plunging before the latest rate hike. US corporations took on record debt owing to the years of ultra-low rates. Some 70% of that debt is rated just above “junk” status. That corporate non-financial debt totaled $9 trillion in 2006. Today it exceeds $18 trillion. Now a large number of those marginal companies will not be able to rollover the old debt with new, and bankruptcies will follow in coming months. The cosmetics giant Revlon just declared bankruptcy.

The highly-speculative, unregulated Crypto market, led by Bitcoin, is collapsing as investors realize there is no bailout there. Last November the Crypto world had a $3 trillion valuation. Today it is less than half, and with more collapse underway. Even before the latest Fed rate hike the stock value of the US megabanks had lost some $300 billion. Now with stock market further panic selling guaranteed as a global economic collapse grows, those banks are pre-programmed for a new severe bank crisis over the coming months.

As US economist Doug Noland recently noted, “Today, there’s a massive “periphery” loaded with “subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on. A massive infrastructure has evolved over this long cycle to spur consumption for tens of millions, while financing thousands of uneconomic enterprises. The “periphery” has become systemic like never before. And things have started to Break.”

The Federal Government will now find its interest cost of carrying a record $30 trillion in Federal debt far more costly. Unlike the 1930s Great Depression when Federal debt was near nothing, today the Government, especially since the Biden budget measures, is at the limits. The US is becoming a Third World economy. If the Fed no longer buys trillions of US debt, who will? China? Japan? Not likely.

Deleveraging the bubble

With the Fed now imposing a Quantitative Tightening, withdrawing tens of billions in bonds and other assets monthly, as well as raising key interest rates, financial markets have begun a deleveraging. It will likely be jerky, as key players like BlackRock and Fidelity seek to control the meltdown for their purposes. But the direction is clear.

By late last year investors had borrowed almost $1 trillion in margin debt to buy stocks. That was in a rising market. Now the opposite holds, and margin borrowers are forced to give more collateral or sell their stocks to avoid default. That feeds the coming meltdown. With collapse of both stocks and bonds in coming months, go the private retirement savings of tens of millions of Americans in programs like 401-k. Credit card auto loans and other consumer debt in the USA has ballooned in the past decade to a record $4.3 trillion at end of 2021. Now interest rates on that debt, especially credit card, will jump from an already high 16%. Defaults on those credit loans will skyrocket.

Outside the US what we will see now, as the Swiss National Bank, Bank of England and even ECB are forced to follow the Fed raising rates, is the global snowballing of defaults, bankruptcies, amid a soaring inflation which the central bank interest rates have no power to control. About 27% of global nonfinancial corporate debt is held by Chinese companies, estimated at $23 trillion. Another $32 trillion corporate debt is held by US and EU companies. Now China is in the midst of its worst economic crisis since 30 years and little sign of recovery. With the USA, China’s largest customer, going into an economic depression, China’s crisis can only worsen. That will not be good for the world economy.

Italy, with a national debt of $3.2 trillion, has a debt-to-GDP of 150%. Only ECB negative interest rates have kept that from exploding in a new banking crisis. Now that explosion is pre-programmed despite soothing words from Lagarde of the ECB. Japan, with a 260% debt level is the worst of all industrial nations, and is in a trap of zero rates with more than $7.5 trillion public debt. The yen is now falling seriously, and destabilizing all of Asia.

The heart of the world financial system, contrary to popular belief, is not stock markets. It is bond markets—government, corporate and agency bonds. This bond market has been losing value as inflation has soared and interest rates have risen since 2021 in the USA and EU. Globally this comprises some $250 trillion in asset value a sum that, with every fed interest rise , loses more value. The last time we had such a major reverse in bond values was forty years ago in the Paul Volcker era with 20% interest rates to “squeeze out inflation.”

As bond prices fall, the value of bank capital falls. The most exposed to such a loss of value are major French banks along with Deutsche Bank in the EU, along with the largest Japanese banks. US banks like JP MorganChase are believed to be only slightly less exposed to a major bond crash. Much of their risk is hidden in off-balance sheet derivatives and such. However, unlike in 2008, today central banks can’t rerun another decade of zero interest rates and QE. This time, as insiders like ex-Bank of England head Mark Carney noted three years ago, the crisis will be used to force the world to accept a new Central Bank Digital Currency, a world where all money will be centrally issued and controlled. This is also what Davos WEF people mean by their Great Reset. It will not be good. A Global Planned Financial Tsunami Has Just Begun.

‘Rublegas:’ the world’s new resource-based reserve currency

Posted on by
Reply
The Russian ruble is sitting pretty right now, having regained its pre-sanctions value and set to become a major commodity currency.Photo Credit: The Cradle

Rublegas is the commodity currency du jour and it isn’t nearly as complicated as NATO pretends. If Europe wants gas, all it needs to do is send its Euros to a Russian account inside Russia.

By Pepe Escobar

Source: The Cradle

Saddam, Gaddafi, Iran, Venezuela – they all tried but couldn’t do it. But Russia is on a different level altogether.

The beauty of the game-changing, gas-for-rubles, geoeconomic jujitsu applied by Moscow is its stark simplicity.

Russian President Vladimir Putin’s presidential decree on new payment terms for energy products, predictably, was misunderstood by the collective west. The Russian government is not exactly demanding straightforward payment for gas in rubles. What Moscow wants is to be paid at Gazprombank in Russia, in its currency of choice, and not at a Gazprom account in any banking institution in western capitals.

That’s the essence of less-is-more sophistication. Gazprombank will sell the foreign currency – dollars or euros – deposited by their customers on the Moscow Stock Exchange and credit it to different accounts in rubles within Gazprombank.

What this means in practice is that foreign currency should be sent directly to Russia, and not accumulated in a foreign bank – where it can easily be held hostage, or frozen, for that matter.

All these transactions from now on should be transferred to a Russian jurisdiction – thus eliminating the risk of payments being interrupted or outright blocked.

It’s no wonder the subservient European Union (EU) apparatus – actively engaged in destroying their own national economies on behalf of Washington’s interests – is intellectually unequipped to understand the complex matter of exchanging euros into rubles.

Gazprom made things easier this Friday, sending official notifications to its counterparts in the west and Japan.

Putin himself was forced to explain in writing to German Chancellor Olaf Scholz how it all works.

Once again, very simple: Customers open an account with Gazprombank in Russia. Payments are made in foreign currency – dollars or euros – converted into rubles according to the current exchange rate, and transferred to different Gazprom accounts.

Thus it is 100 percent guaranteed that Gazprom will be paid.

That’s in stark contrast to what the United States was forcing the Europeans to do: pay for Russian gas in Gazprom accounts in Europe, which would then be instantly frozen. These accounts would only be unblocked with the end of Operation Z, Russia’s military ops in Ukraine.

Yet the Americans want the war to go on indefinitely, to “bog down” Moscow as if this was Afghanistan in the 1980s, and have strictly forbidden the Ukrainian Comedian in front of a green screen somewhere – certainly not Kiev – to accept any ceasefire or peace deal.

So Gazprom accounts in Europe would continue to be frozen.

As Scholz was still trying to understand the obvious, his economic minions went berserk, floating the idea of nationalizing Gazprom’s subsidiaries – Gazprom Germania and Wingas – in case Russia decides to halt the gas flow.

This is ridiculous. It’s as if Berlin functionaries believe that Gazprom subsidiaries produce natural gas in centrally heated offices across Germany.

The new rubles-for-gas mechanism does not in any way violate existing contracts. Yet, as Putin warned, existing contracts may indeed be stopped: “If such [ruble] payments are not made, we will consider this to be the buyers’ failure to perform commitments with all ensuing implications.”

Kremlin spokesman Dmitri Peskov was adamant that the mechanism will not be reversed under the current, dire circumstances. Still that does not mean that the gas flow would be instantly cut off. Payment in rubles will be expected from ‘The Unfriendlies’ – a list of hostile states that includes mostly the US, Canada, Japan and the EU – in the second half of April and early May.

For the overwhelming majority of the Global South, the overarching Big Picture is crystal clear: an Atlanticist oligarchy is refusing to buy the Russian gas essential to the wellbeing of the population of Europe, while fully engaged in the weaponization of toxic inflation rates against the same population.

Beyond Rublegas

This gas-for-rubles mechanism – call it Rublegas – is just the first concrete building block in the construction of an alternative financial/monetary system, in tandem with many other mechanisms: ruble-rupee trade; the Saudi petroyuan; the Iran-Russia SWIFT- bypassing mechanism; and the most important of all, the China-Eurasia Economic Union (EAEU) design of a comprehensive financial/monetary system, with the first draft to be presented in the next few days.

And all of the above is directly linked to the stunning emergence of the ruble as a new, resource-based reserve currency.

After the predictable initial stages of denial, the EU – actually, Germany – must face reality. The EU depends on steady supplies of Russian gas (40 percent) and oil (25 percent). The sanction hysteria has already engineered certified blowback.

Natural gas accounts for 50 percent of the needs of Germany’s chemical and pharmaceutical industries. There’s no feasible replacement, be it from Algeria, Norway, Qatar or Turkmenistan. Germany is the EU’s industrial powerhouse. Only Russian gas is capable of keeping the German – and European – industrial base humming and at very affordable prices in case of long-term contracts.

Disrupt this set up and you have horrifying turbulence across the EU and beyond.

The inimitable Andrei Martyanov has summed it up this way: “Only two things define the world: the actual physical economy, and military power, which is its first derivative. Everything else are derivatives but you cannot live on derivatives.”

The American turbo-capitalist casino believes its own derivative “narrative” – which has nothing to do with the real economy. The EU will eventually be forced by reality to move from denial to acceptance. Meanwhile, the Global South will be fast adapting to the new paradigm: the Davos Great Reset has been shattered by the Russian Reset.

Europe Is Killing Itself With Its Russian Sanctions

Posted on by
Reply

By Paul Craig Roberts

Source: PaulCraigRoberts.org

The sharp rise in natural gas price in Europe is entirely due to Western hysteria and stupidity. According to the EU’s own data, Europe is dependent on Russia for 46% of its natural gas. In the face of such extraordinary dependency on Russian energy, the moronic European “leaders” are falling all over themselves imposing impotent sanctions on Russia.  The idiotic German Chancellor actually punished the German people for Russia’s recognition of the Donbass republics by “cancelling” the Nord 2 pipeline.  This foolish act was a prime reason for the hysteria that has caused a sharp rise in prices.  The price rise helps Russia–if she continues to supply Europe with energy.  It hurts Europe and whoever financed the Nord 2 pipeline. If the pipeline sits not operating, it cannot produce a revenue stream to service the capital invested in the pipeline.  I do not know who financed the pipeline. If it was Germany, then the chancellor’s sanctions on Russia have twice injured the Germans.

The EU’s 46% dependency on Russian natural gas is independent of the Nord 2 pipeline, the opening of which has been on hold due to Washington’s pressure on Germany. Therefore, the rise in gas price is not due to a reduction of supply, but due to speculation that Russia will reduce or cut off supply. Europe is served by other pipelines.  What if Russia responds to the EU’s “sanctions” by closing the pipelines that deliver 46% of Europe’s natural gas?  What would Europe’s fate be?

Russia has accepted sanctions without replying in kind.  Perhaps it is time for Russia to impose sanctions to teach the West a lesson.

In my opinion there is no reason for Russia to deplete its own energy resources by sharing them with its European enemies.  Perhaps the Russian government’s idea was that energy sales would be a source of foreign exchange earnings and that providing Europe with energy was in the interest of good relations with the West.

Now that the West has demonstrated that the West has no interest in good relations with Russia there is no point in the Russian energy sales.  As I pointed out ( https://www.paulcraigroberts.org/2022/02/22/russia-and-china-should-go-their-own-way/ ) Russia has no need for foreign exchange.  The Russian central bank can finance Russian economic development with no need of foreign involvement.  Russia’s holdings of instruments denominated in dollars or euros would just be confiscated by sanctions.

To summarize:  Europe brought the high energy price on itself with its thoughtless sanctions; the high prices benefit Russia and hurt Europe; Russia should consider turning off all natural gas to Europe and conserve its energy source for its own and China’s development.

Europe is nothing but a thorn in Russia’s side, a collection of Washington’s puppets.  Russia owes Europe nothing. 

Sino-Russia Energy Deals to Defeat US/NATO Expansionism

Posted on by
Reply

By Salman Rafi Sheikh

Source: New Eastern Outlook

While the recent meeting between Russia’s Vladimir Putin and China’s Xi in Beijing may not in itself be an extra-ordinary event, its significance against the backdrop of the on-going tussle between Russia and the US/NATO is quite unmistakable – not only for Russia itself, but for the US/NATO as well. Even though Russia does not really need China’s help to defend its sovereignty militarily or otherwise, it remains that China’s open support for Russia’s stance against the US plan to push NATO into Ukraine as a geo-political tool does debunk the US propaganda of Russian “isolation.” More than anything else, China’s growing strategic alliance allows Russia a great opportunity to withstand possible Western sanctions, or European decision to reduce its supply of gas from Russia. But co-operation in one field is often not possible without co-operation in other fields. That’s why the long joint statement issued after the meeting laid a lot of stress on jointly opposing Western plans to destabilise regions adjacent to mainland China and Russia i.e., Ukraine, Taiwan, and Hong Kong. As the sides reiterated:

“The sides oppose further enlargement of NATO and call on the North Atlantic Alliance to abandon its ideologized cold war approaches, to respect the sovereignty, security and interests of other countries, the diversity of their civilizational, cultural and historical backgrounds, and to exercise a fair and objective attitude towards the peaceful development of other States.”

While the fact that both Russia and China oppose Western expansionism both via NATO or anti-China AUKUS (Australia, United Kingdom and United States) treaty has already unsettled Western echelons of power, it is the growing co-operation between Russia and China in the energy sector that is most likely to defeat US designs vis-à-vis forcing Russia to submit. This is particularly significant given that the US is particularly interested in hurting Russia’s gas and oil sales. US President Biden recently said this, while standing next to his German counterpart, without mincing any words only recently on February 7:

“What everybody forgets here is Russia needs to be able to sell that gas and sell that oil.  Russia relies — a significant part of Russia’s budget — it’s the only thing they really have to export.  And if, in fact, it’s cut off, then they’re going to be hurt very badly, as well.  And it’s of consequence to them as well.  This is not just a one-way street.”

Moscow is, obviously, not unaware of this design. When Putin visited Beijing, he did not just attend the Winter Olympics; in fact, Putin signed a billion dollar oil and gas deal with Beijing. “Our oilmen have prepared very good new solutions on hydrocarbon supplies to the People’s Republic of China,” Putin said in Beijing. Besides the new deal, China also promised to ramp up Russia’s Far East exports. A new 30-year contract to supply 10 billion cubic meters (bcm) per year to China from Russia’s Far East was signed. With China supporting Russia’s stance on Ukraine, China’s increasing purchase of Russian oil and gas sent a powerful signal to the world that both superpowers will be taking care of each other’s interests against the combined strength of predatory western alliance, making their claims of punishing Russia hollow.

The announcement also comes against the backdrop of US claims that they – US and its allies – have a wide range of “tools” at their disposal to punish any state, including China, if they try to “backfill US exports controls” imposed on Russia. As Ned Price of the White House recently claimed in his press briefing:

“Putin knows that this would be of massive consequence to his country and to his economy. This – a closer relationship with the PRC, a closer relationship between Russia and the PRC – is not going to make up for that; it is not going to account for that. One final point. We have – and when I say we I mean collectively, the United States and our allies and partners – we have an array of tools that we can deploy if we see foreign companies, including those in China, doing their best to backfill U.S. export control actions, to evade them, to get around them.”

China’s deal, therefore, very clearly defies US threats, showing how the politics of sanctions – which is Washington’s favourite geo-political “tool” – cannot really deter states like China and Russia, who, too, posses enough “tools” to stage a counter-attack. The oil & gas deals are a manifestation of that counter-attack.

Even as many political pundits in the West have highlighted, the US plan against Russia cannot work unless Washington can first wean China away. The fact that Washington’s ties with Beijing are as bad as with Moscow means that Washington does not have enough geo-political capacity to dictate policies and decisions by really isolating Russia. Although it might still impose sanctions, China is unlikely to be bothered by them, thus defeating Washington’s plan to inflict an unacceptable level of damage on Russia, which also already has US$640 billion in foreign exchange reserves to withstand western sanctions.

But, as mentioned above, the real factor bothering the West is not what Russia can or might do in the wake of a conflict around Ukraine; the real factor is the almost absolute convergence between Russia and China on almost all issues of global politics – a fact duly highlighted via the said joint statement. This statement is not about their bi-lateral relations; in fact, it is an elaborate commentary on the challenges they are facing from the West and how these very challenges have transformed and elevated their ties to a level not known in the contemporary era.

Therefore, in the wake of US/European pressure on Russia and Moscow’s massive new deals with China means the Biden administration will now have to come up with a new plan to defeat Russia, or altogether drop its project. With Russia now clearly able to diversify its oil and gas deals away from Europe, the question is: can Europe itself do without Russia and without facing any economic backlash? It was only last week the UK government announced a whooping 54 per cent increase in domestic energy bills, causing a political outcry against the Johnson administration. The unnecessary war in Russia is already starting to bite back the war-wagers themselves.